ASX energy shares on watch after oil prices surge higher

Oil Search Ltd (ASX:OSH) and Santos Ltd (ASX:STO) shares could surge higher today after oil prices jumped 5% overnight…

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Barrels of oil with rising arrow, oil price increase

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It looks set to be a great day of trade for Australian energy producers such as Beach Energy Ltd (ASX: BPT), Oil Search Ltd (ASX: OSH), Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) after oil prices surged higher overnight.

This follows the release of a surprise announcement by the world’s second largest oil producer, Saudi Arabia.

What happened?

Oil prices surged higher overnight after Saudi Arabia unexpectedly announced that it would cut its production by approximately 1 million barrels a day.

According to Bloomberg, the WTI crude oil price is up 5.1% to US$50.06 a barrel and the Brent crude oil price has stormed 5.1% higher to US$53.70 a barrel. This is the first time that the WTI crude oil price has been above US$50 a barrel since February 2020.

On Tuesday, OPEC and its oil-producing allies, known as OPEC+, agreed to hold their output largely steady in February. Just Russia and Kazakhstan revealed plans to add a combined 75,000 barrels per day to the market in both February and March.

However, according to CNBC, after the meeting, Saudi Arabia held a press conference and announced its surprise production cut for February and March.

Again Capital’s John Kilduff believes that lockdowns may have spooked OPEC and Saudi Arabia, leading to this action.

He said: “WTI oil prices have climbed above $50, for a time, today, on an increasingly likely surprise move by OPEC+ to cut production next month, rather than raising it. The renewed lockdowns in the U.K. Europe has spooked the group.”

Though, not everyone is seeing this production cut news as a positive. CIBC Private Wealth’s senior energy trader, Rebecca Babin, suspects that Saudi Arabia stepped in after failing to get an agreement with the rest of OPEC+. She fears this unwillingness to work together may ultimately be seen as a negative and cause oil prices to pullback.

Babin told CNBC: “I view this type of an ‘agreement’ as an indication that it is getting harder to get OPEC+ members in line and keep production constrained while demand looks threatened by ongoing lockdowns and slow vaccination roll out. WTI traded briefly above $50 following the headlines, but I suspect a more negative interpretation of today’s meeting may cause crude to fail at $50.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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